United Falls on Buckingham Downgrade as Hubs Lag: Chicago Mover

By Mary Jane Credeur -
Jan 25, 2013

United Continental Holdings Inc. (UAL)
tumbled the most in more than two months after Buckingham
Research Group cut its rating to neutral and said fares at two
hubs are curbing the carrier’s profit margins.

The shares slid 3.1 percent to $24.75 at 10:46 a.m. in New
York trading. An earlier drop of 4.7 percent decrease was the
largest on an intraday basis since Nov. 14.

United’s domestic revenues at its hubs in San Francisco and
Denver are a “drag on margins and unlikely to improve
meaningfully,” Daniel McKenzie, an analyst at Buckingham in New
York, wrote today in a research note. He previously recommended
buying the stock.

Competitor Virgin America Inc. is five times bigger at San
Francisco than it was in 2008, he wrote. United’s domestic
system is 20 percent smaller than it was five years ago, a
deeper retrenchment than that of peers, he said.

McKenzie did a five-year pricing study and found that
domestic fares in Denver and San Francisco have increased just
10 percent and 18 percent respectively, while other hubs such as
Houston and Chicago had increases of 40 percent and 28 percent
over the same period.

AMR Corp. (AAMRQ)’s American Airlines, which is lowering its costs
under bankruptcy court protection, is “yet another worry” for
United as it tries to capture more corporate travel, McKenzie
said.

United Airlines parent UAL Corp. merged with Continental
Airlines Inc. in 2010 in an all-stock deal, surpassing Delta Air
Lines Inc. as the world’s biggest carrier.